Observers contended that the one-two punch of the 15 per cent foreign home buyers’ tax and the new federal mortgage rules has opened the Vancouver real estate market to major risks that might materialize in the near future.
Latest figures from the Real Estate Board of Greater Vancouver bore out this gloomy viewpoint, with home sales dramatically plunging by 38.8 per cent year-over-year in October, CBC News
David Madani of Capital Economics stated that this marks the continuous decline of sales volume in the city, which began approximately February this year.
“[Vancouver] is in a full-blown correction,” Madani said. “Introducing [the new rules] now, the risk is that this could be the trigger or catalyst that everyone fears the most.”
However, the Canada analyst cautioned that this correction should be attributed less on the foreign buyers’ tax, and more on the credit cycle that led to the prevailing environment of record-low interest rates--and the consequent heavily leveraged client base.
“Anything that reduces the amount of credit available to purchase a home will slow the market down,” Madani explained. “So the housing mess that's been created over the past decades or so, it's not just about low interest rates, it's about the increased leverage in the system.”
“I do think the Vancouver market is going to have a very, very hard landing that will probably drag out for a few years potentially.”
Meanwhile, Benjamin Tal of CIBC argued that while the foreign buyers’ tax indeed played a significant role, a more important factor is the staggering price growth that had prospective buyers simply opt out of the market entirely.
Vancouver should net be taken as a simulation of how Toronto would fare in the next few months, however.
“It's not a crash, it's not a free fall,” Tal said. “But it's exactly what the government would like to see. They'd like to see the market slowing down, they would like to see less mortgages in the market, less people buying.”
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